Eye on Pakistan

MCB’s purchase of Royal Bank of Scotland’s Pakistani assets collapses

Posted in Political Economy by onpakistan on January 6, 2010

MCB’s ongoing disagreements with the State Bank of Pakistan, regarding the State Bank’s request for a deposit of MCB shares, has scuppered the agreed sale of RBS’s Pakistani branches to MCB. Other buyers are thin on the ground.  Foreign investors appeared to have learned their lessons following a string of disastrous acquisitions – not least ABN Amro’s 2007 acquisition of Prime Bank and RBS’s acquisition of ABN Amro’s Pakistani operations (also in 2007). Consequently RBS now has little choice but to remain in Pakistan (a market to which, following the recent banking crisis, it now has no commitment) for the foreseeable future. RBS is likely to keep its Pakistani subsidiary largely as it is for the time being, with an attempt at some light (and so relatively low risk) cost cutting. Deep cost cuts (such as merging the erstwhile ABN Amro and Prime Bank operations) are risky and may damage the future sale value of its Pakistani assets.

For more information see:

RBS’s stock exchange announcment.
The two most informative press articles are: an article in Pakistani Daily Times, and an article in London’s Financial Times.

I reproduce the Financial Times article below:

RBS fails to conclude sale of Pakistan arm
By Adam Jones in London and Farhan Bokhari in Islamabad
Published: January 4 2010 08:58 | Last updated: January 4 2010 16:44
Royal Bank of Scotland’s withdrawal from retail and commercial banking in Asia has suffered a setback after a plan to sell its Pakistani arm unravelled.
RBS announced in August that it was selling a 99.4 per cent stake in its RBS Pakistan subsidiary to MCB Bank, a Pakistani rival, for PKR7.2bn (£53m).
However, in a brief stock exchange statement on Monday it said that the deal had lapsed because it had not received the necessary regulatory approval by the end of 2009.
Pakistan’s central bank in Karachi said it had refused to clear the deal because of a dispute over MCB depositing its shares as security.
RBS indicated that a fresh buyer was now being sought for the unit, which has more than 300,000 customers.
An official said: “The Pakistan business remains part of the non-core businesses and the process of identifying a suitable buyer is under way.”
However, bankers in Karachi said RBS would face a difficult challenge in finding another buyer soon, in view of concerns over Pakistan’s internal security conditions and its moribund economy.
The president of a private Pakistani bank said “MCB is out of the race. But finding another buyer may not be that easy at a time when investors looking at Pakistan see the country surrounded by many issues, mainly security and the economy”.
A Pakistani central bank official who did not want to be named said RBS would have to consider continuing to function in Pakistan for the foreseeable future.
The official said: “Unless the RBS managers have something up their sleeves, I don’t see the likelihood of another deal coming together anytime soon. RBS will have to consider functioning as it is”.
RBS, which is majority-owned by the British government, said in February that it was withdrawing from retail and commercial banking in Asia, arguing that its presence in the region was too small and too thinly spread.
In August, RBS announced the sale of assets in Taiwan, Singapore, Indonesia, Hong Kong, the Philippines and Vietnam to ANZ, the Australian lender.
Shares in RBS closed 9.5 per cent higher at 31.98p after reports that Brazil’s largest bank, Itau Unibanco, was considering taking stakes in a number of UK banks.

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